Bearish GameStop options contracts fly off the shelf after stock surge
The volume of bearish options bets on GameStop Corp has surged while bullish bets are taking a backseat after a run that has catapulted the video game and electronics retailer’s shares more than 700% over the past four sessions.
For every GameStop call option traded on Wednesday, there were about 3.5 puts that changed hands, the highest ratio in more than a year. Call options rise in value when a stock gains while puts appreciate when the underlying stock declines.
GameStop puts have overtaken calls since Friday after six straight weeks of predominantly bullish flow. Of the top 20 most heavily traded GameStop options contracts on Wednesday, 18 were puts.
“You do have, potentially, speculators who are betting this bubble is going to deflate at some point,” said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research.
The rise may also be coming from holders of GameStop shares seeking to protect their gains against a potential decline, Frederick said.
Another possible explanation may be that investors who had to cover short bets against GameStop’s stock are now buying the options as a cheaper way to bet on an eventual price decline, said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.
“The less riskier position would be to buy puts, because there’s a limited amount you can lose. That might be why we’re seeing more put volume,” Murphy said.
Options, which offer investors a cheap way to place leveraged bets on big moves in stocks, have played an important role in driving GameStop’s breathtaking rally.